EMD exemption for MSEs in government tenders: GFR Rule 170, bid security declarations and how to claim it in 2026

A ₹2 lakh EMD on a ₹50 lakh supply bid is working capital locked for two or three months, and the rules exempt most micro and small enterprises from it. The rejections we see are not because the exemption is unclear. Bidders assume it applies everywhere, claim it with the wrong proof, or skip the declaration the buyer asked for instead.

What the rule says in 2026

The governing text is GFR 2017 Rule 170, restated in para 6.1.1 of the Department of Expenditure’s Manual for Procurement of Goods, Second Edition 2024:

• Bid security is to be obtained in advertised and special limited tenders, ordinarily 2 to 5 percent of the estimated value, valid for 45 days beyond the final bid validity.
• Acceptable forms: insurance surety bond, account payee demand draft, banker’s cheque, bank guarantee including e-bank guarantee, or online payment.
• Micro and Small Enterprises as defined in the MSE Procurement Policy and startups recognised by DPIIT are exempt from EMD. Firms registered with the procuring ministry or department may also be exempted, but only for the trade group and monetary value of their registration.
• In place of bid security, a procuring entity may, with competent authority approval, ask for a Bid Securing Declaration (BSD): the bidder accepts suspension from that entity’s tenders for the period stated if it withdraws or modifies the bid during validity, or fails to sign the contract or furnish performance security.
• Bid securities of bidders who fail the technical stage must be returned within 30 days of the technical result, an amendment of April 2022.

Medium enterprises are not exempt, and performance security is not exempt for anyone; the Ministry of MSME’s own FAQ on the policy says so in plain terms.

The 2020 order, and why you still see declarations everywhere

In November 2020 the Department of Expenditure issued OM F.9/4/2020-PPD. Notwithstanding GFR or any procurement manual, “no provisions regarding Bid Security should be kept in the Bid Documents in future and only provision for Bid Security Declaration should be kept”, with EMD allowed only on approval of the next higher authority. A companion OM of the same date cut performance security to 3 percent, and a copy went to DPE for CPSEs.

Both were pandemic relaxations; the bid security instruction applied to tenders issued up to 31 December 2021. The 3 percent performance security was extended to 31 March 2023 and then lapsed. The 2024 Manual quoted above is the current position: EMD is the default again, and the declaration is an option the buyer chooses.

Thousands of 2021 templates still carry a BSD annexure, so in 2026 you will meet all three patterns: EMD with an MSE exemption, a BSD from everyone, or EMD with a BSD accepted from exempt categories. Read the NIT every time.

Who is exempt, and who only thinks they are

GeM has its own list in clause 4, section xiii (m) of the General Terms and Conditions (GeM 4.0 GTC version 1.25, 14 July 2025), reproduced in a BHEL tender corrigendum. GeM takes no bid security for bids with an estimated value below ₹5 lakh, recommends 1 percent above that, and lets buyers set 0.5 to 5 percent.

GeM’s note is blunt: no EMD is to be taken from exempt sellers “even by way of specific clauses mentioned in ATC / STC”, and such clauses are void; GeM’s standard bid document lists it among the things a buyer must not do (example bid, 2025).

Where the exemption does not apply

Works contracts. The MSE policy covers goods produced and services rendered by MSEs. The Ministry’s FAQ excludes “traders/distributors/sole agent/Works Contract”, and the Gauhati High Court held in 2025 that works contracts are outside the 2012 Order, relying on an MSME clarification of 31 August 2023. A BEML civil works corrigendum states that MSE firms get no EMD exemption on works. Startups differ: the 2024 Manual says the turnover and experience relaxation for DPIIT startups “can be provided in the case of procurement of works as well”.

State portals. GFR binds central bodies; states notify their own policies, and the variations are real. Gujarat’s power utilities exempt only SSI units registered in Gujarat that also hold CSPO, NSIC or DGS&D registration, and withdraw the benefit if the unit bids through a dealer. Even on GeM, “State Government Buyers may choose to exempt only MSEs from the State of Bid Inviting Authority” by saying so in the ATC. Haryana’s startup concessions, per Startup India, go to startups based in the state. Treat every state NIT as new.

PSUs. CPSEs follow GFR through DPE, but their tender conditions add filters. NTPC’s standard wording limits the benefit to goods and services produced and provided by the MSE itself (NTPC tender).

Item mismatch. The Ministry’s FAQ says benefits apply only to MSEs registered for that item group (NIC code) under Udyam. A fabrication unit bidding for IT hardware will be refused the exemption, and usually the bid.

How to claim it on GeM

1. Link Udyam to your seller profile. GeM pulls MSME registrations through a live Udyam API, and the standard bid clause says MSE benefits apply “only if seller is validated on-line in GeM profile as well as validated and approved by Buyer”.
2. At bid participation, claim the exemption, give the specific confirmation that you manufacture the offered product or provide the service, and upload the Udyam or DPIIT certificate in the EMD document slot. Where the bid also asks for a bid security declaration, merge it into the same upload.
3. Expect validation during technical evaluation; GeM’s “EMD Exemption Workflow” lets buyers verify eligibility at that stage (GeM feature notes).
4. If an ATC demands EMD from exempt sellers, use the Representation window in the bid details within the period the bid states (buyers commonly write 4 days from publication) and quote the GTC. Buyers cannot open bids with unanswered representations.
5. If you are not exempt, the GTC requires the scanned instrument in the bid and the hard copy with the buyer within 5 working days of bid opening, failing which the bid may be rejected.

How to claim it on CPPP and GePNIC state portals

The 2024 Manual (para 5.2.7) says a self-attested scan of the bid security or BSD must be uploaded with the bid and “bids not complying with these provisions shall be rejected”. CPPP’s bidder instructions add that where the EMD is paid offline, the scanned copy and the physical instrument must match “otherwise the Tender will be summarily rejected”.

For an exempt MSE: upload the Udyam certificate in the EMD slot, the BSD if the NIT provides one, and cite the claim and clause in the cover letter. Where the NIT is silent, ask in the pre-bid query.

Bid security declaration: wording that works

Use the buyer’s annexure if one exists. If not, the structure below follows the CSIR model (Annexure 5F) and the 2024 Manual. Head it with the date, bid number and purchaser’s address, then:

“We, (name of bidder), declare that we understand bids must be supported by a Bid Securing Declaration. We accept that we may be disqualified from bidding for any contract with you for a period of (period stated in the tender, commonly one year) from the date of notification if we are in breach of our obligations under the bid conditions because we (a) have withdrawn or modified our bid during the period of bid validity, or (b) having been notified of the acceptance of our bid during the period of bid validity, fail or refuse to execute the contract or to furnish the performance security. We understand this declaration ceases to be valid if we are not the successful bidder, upon the earlier of receipt of your notification of the successful bidder or thirty days after the expiry of our bid validity.”

The authorised signatory signs with name and capacity, under seal; a joint venture issues it in the name of all partners.

Common rejections

1. Trader claiming MSE exemption. The Delhi High Court saw exactly this in 2025: a bidder’s Udyam was rejected because it was not the manufacturer, and it was asked to furnish an EMD instrument instead (judgment).
2. Udyam not validated. Certificate uploaded, but the GeM profile never linked and verified.
3. No declaration where one was required. The NIT asked exempt bidders for a BSD; the bidder uploaded Udyam alone.
4. Declaration where cash was demanded. The NIT offered no BSD route and the buyer had no approval to accept one.
5. Wrong item group. Udyam NIC codes do not cover the tendered item.
6. Expired DPIIT recognition or turnover above the startup ceiling. GeM requires the bidder to confirm turnover remains within DPIIT limits.
7. Short, late or mismatched EMD where no exemption applied. Even ₹1 short is a rejection; see the tender document checklist.

What to automate

• Eligibility screen per tender: read the EMD clause, portal and buyer type and decide exempt, declaration or cash before anyone spends an hour.
• Vault with validity: Udyam, DPIIT recognition, NSIC and vendor-assessment reports with expiry alerts, so the proof is current on the day the bid goes in.
• Declaration generation: the BSD populated from the tender record in the buyer’s format, ready for a human to sign.
• EMD and refund tracking: instruments, 5-day hard-copy deadlines and the 30-day refund clock after technical results.

This is one module of our tender automation build, shown in the tender desk demo. The wider playbook is how to win government tenders in India.